Steven Porrello, The Motley Fool
4 min read
As of this writing on Aug. 5, the S&P 500 (SNPINDEX: ^GSPC) is trading at its highest level ever. It is on track to notch its sixth consecutive day of gains. Already, the S&P 500 index is up roughly 13% in 2026; if this bull market continues, the index will close 2026 with its fourth consecutive year of double-digit gains — a multi-year streak not seen since the mid-90s dot-com era.
There’s another similarity between today’s bull market and the dot-com era’s bull market. And while it doesn’t mean today’s market will meet the same fate as the dot-com crash, it is a strong warning that a downturn is likely coming. Here’s what I mean.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
The S&P 500 is reaching extreme valuations unseen in decades
The S&P 500 Shiller CAPE ratio compares the S&P 500’s current price with its average inflation-adjusted earnings over the past decade. Looking at a full decade of earnings, rather than just one or two years, helps smooth out the market’s ups and downs. It’s one of the most widely followed indicators of the stock market’s valuation. And it has gotten seriously high.
As the chart above suggests, the CAPE has averaged about 16-17 over the last 150 years. Notice, for instance, that the CAPE has exceeded 24 only a handful of times. Many of those periods ended in some of the worst market crashes in history, including the Great Depression and the dot-com crash.
Only twice has the CAPE climbed above 40: first during the late 1990s when it peaked at about 44, and again today, when it sits at roughly 41.4. Put differently, investors are paying about $40 for every $1 of the S&P 500’s average-inflation adjusted earnings over the last decade. Compared with a historical CAPE of 17, investors are paying roughly $23 more per dollar of earnings, or a premium of about 135% more.
A CAPE above 40 is a once-in-a-generation event — or “twice” if you happened to be investing during the dot-com era. It doesn’t mean a crash is imminent. However, it does show that investors are placing unusually high value on future growth. If that growth falls short of expectations — say, if companies fail to earn an adequate return on their enormous artificial intelligence spending — there could be a very painful reset in stock valuations.
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